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The Inflation Blame Game

The Inflation Blame Game

Now inflation is Russia’s fault. Or is it greedy businesses pushing up prices? Maybe a combination of the two.

It seems that government officials and central bankers are looking everywhere for a place to pin the blame for inflation except the one place they need to look — in the mirror.

I’m already seeing headlines about how Russia’s invasion of Ukraine is causing inflation. CBS broadcast this storyline on the first day of the invasion. As Peter Schiff put it in a recent podcast, Russia is the latest “excuse variant” for inflation.

It is true that the Russian invasion and economic sanctions have caused some prices to spike. Oil was over $130 a barrel over the weekend. Copper hit record highs. The price of wheat surged. But this is not necessarily inflationary. Inflation causes a general rise in prices across the board. In this situation, some prices will rise while others fall. As consumers spend more on food and energy, they will cut spending on other goods and services. Ostensibly, those prices will drop.

Inflation — an increase in the money supply — causes prices to rise more generally. It’s the result of more dollars chasing the same number of (or fewer) goods and services. As Peter explained, the culprit is the central bank.

What makes the prices go up is when the central bank responds to rising energy prices or rising food prices by printing more money, which is what they are going to do. Because as consumers have to tighten their belts because food is so expensive, because home heating oil and gasoline are so expensive, and they cut back spending on everything else, that causes a recession. And that results in the Fed printing more money, and that’s what’s inflationary.”

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